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Monday, February 28, 2011

The National Governors Association has sent a desperate message to the federal government. Given how deeply the states depend on the U.S. for their fiscal survival one would expect the governors' first order of business to be to ask the federal government not to impose any more mandates or spending programs on the states. But that was not the content of the message that the governors sent to D.C.. Quite the contrary:---

Their states on the brink of financial catastrophe, governors pleaded Saturday for the divided federal government to avoid doing anything that would hamper the tenuous economic recovery back home. Their message to Washington: prevent a government shutdown, abstain from spending cuts that dramatically will affect states and end even preliminary discussions about allowing states to declare bankruptcy. "Anything that Congress does that will undermine our recovery is quite troublesome to us," said Washington Gov. Christine Gregoire, head of the National Governors Association, as she opened the bipartisan group's winter meeting. ... States have made $75 billion in budget cuts and raised taxes by $33 billion over the past two years to make up for budget shortfalls caused by the recession. Governors drained reserve cash funds and oversaw several rounds of severe budget cuts, so much so that Republicans and Democrats alike now are focused on how to completely remake state governments. ... Over the next two-and-a-half years, states face an estimated $175 billion more in budget gaps that they have no choice but to fill. The hole is caused partly because an initial infusion of cash from President Barack Obama's economic stimulus law, as well as extensions of that money, will dry up in June. States received $103 billion in Medicaid money and $48 billion in education dollars to soften the recession's blow.

First of all, any mention of states being ready to "completely remake state governments" should be read very cautiously. It is highly improbable that this involves any entitlement reforms or concentration of government to its essential functions. More likely, this is about re-organizing government administration, moving state employee pensions toward defined contribution instead of defined benefit and possibly putting more government operations up for competitive contract bidding.

Nothing in the National Governors Association message to the federal government indicates that they are even contemplating entitlement reform. On the contrary, the governors apparently are desperate not to lose any more entitlement-tied funds, or Federal Aid to States money. It remains to be seen what this means at the end of the day. Do state executives want the financial cushion offered by Federal Aid to States when they take on entitlement reform? Or is their complaint about losing even the ARRA "stimulus funds" an expression of the same old spending addiction that drove states into the arms - or shackles - of the federal government in the first place? One easily gets the impression that they simply want the federal money - their allowance - to keep coming.